Pay Analyst Examines Exec Salary Cap
ROBERT SIEGEL, host:
We wondered whether capping executive compensation at $500,000 would be felt by a few, some, most or nearly all the executives on Wall Street. So we've called up Steven Hall, who has a compensation consulting firm in New York City. Mr. Hall, 500,000, how common?
Mr. STEVEN HALL (Compensation Consulting Firm, New York City): 500,000 is probably someone who has been working on Wall Street for three to four years in the investment side. If they've been working for longer than that, they are certainly above that level.
SIEGEL: Let's take a company like Citigroup, would there be several dozen people making over 500,000 a year there, do you think, or a lot more than that? What's your…
Mr. HALL: Oh, I think of the Citigroup overall here in the thousands, I would think.
SIEGEL: There's a story in the Wall Street Journal about bonuses, which quote some examples. They quote the case of Josh Birnbaum, trader at Goldman Sachs, who reaped a $4 billion profit on the housing credits as investments, and so, he got a bonus of $10 million. Are those sort of the handful of all-star performers on Wall Street making 10 million or are there dozens or scores of them?
Mr. HALL: That is not an exception in terms of Wall Street pay. Wall Street is a wonderful place in terms of, if you perform, if you develop revenue and profits for the company, you'll be very, very well-rewarded. And if you're not very well-rewarded, you'll simply pick up your skills and go to another firm that will be willing to pay you those kinds of dollars.
SIEGEL: Let's say that there are some firms on Wall Street that are capped at 500,000 a year and there are others that aren't. Are those that are capped -even understanding this could be a temporary situation until the financial sector's woes are sorted out - would they really have trouble retaining and attracting people?
Mr. HALL: I believe that they - if, in fact, the compensation for certain people was capped at 500,000, and of course, the rule permits you to give restricted stock that will vest after you get out of TARP, but if you limit people's pay to 500,000, I think you will have people looking for alternative places of employment.
SIEGEL: But what are the alternatives for somebody who says, you know, I'm not going to work for half a million. I want a crack at the $5 million bonus. Where you go to find that?
Mr. HALL: You potentially look at a company that is not operating under TARP or one of these financial assistance programs, and there are both either public firms or private firms that are like that. And you find, in many cases, that those companies would welcome you with open arms.
SIEGEL: So, if I were a - let's not say a great, let's say a very good performer , who is accustomed to making couple a million dollars a year, let's say - you say one opportunity, one choice I would have is for me to say, I'll beat the cap, I'll go out, hang a shingle on my own. Tell the investors whom I have been working with, I'm going out on my own, you want to come with me? I'll serve you well. That's one option.
Mr. HALL: That is an option, but just to clarify, we have to make sure, because what we don't have completely clear yet is the definition says that - from what I've seen of the definition - it talks about a cap of $500,000 to senior executives. We still don't have a definition of what is a senior executive.
SIEGEL: So you think it's possible that the people at the very top of some of the TARP assisted firms might be capped, but indeed among the people working for them might be a large number of uncapped people who are just not senior enough to come under the restriction?
Mr. HALL: That's what it appears to be, yeah.
SIEGEL: But from what I'm hearing you say, I mean, the notion of $500,000 on Wall Street has thousands of people asking: Where's the Bentley with that kind of pay package?
Mr. HALL: You're going to have a lot of those people asking: Where is my bank book because I've got to go make a withdrawal out of my savings account, in order to continue to live? And I realize that in today's world, there's not a lot of sympathy for people that are in that situation, with a number of people that've lost their jobs and taken pay-cuts or pay-freezes. But the reality is these people have built a lifestyle based on expecting that they were going to earn significantly more. And this is a real drag on how they're going to meet the obligations that they and their family have set forth.
SIEGEL: Steven Hall, thanks a lot for talking with us today.
Mr. HALL: Thank you.
SIEGEL: It's Steven Hall, who runs a compensation consulting company, in New York City, talking about the Treasury's new restrictions on compensation to finance sector executives.
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